UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the period ended December 31, 1998 _________________________ OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the transition period from to_______________________
_______________________
Commission File Number: 0-12104
IMMUNOMEDICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1009366
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 American Road, Morris Plains, New Jersey 07950
(Address of principal executive offices) (Zip code)
(973) 605-8200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of February 12, 1999, there were 37,888,090 shares of the registrant's common
stock outstanding.
Page 1 of 19
<PAGE>
IMMUNOMEDICS, INC.
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations
and Comprehensive Loss-
three and six months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
six months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements -
December 31, 1998 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
Page 2 of 19
<PAGE>
<TABLE>
IMMUNOMEDICS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
<CAPTION>
December 31, June 30,
1998 1998
--------------------- ---------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 11,414,669 7,568,147
Marketable securities 2,959,873 14,845
Accounts receivable 1,801,066 1,039,477
Inventory 919,619 913,927
Other current assets 562,206 345,491
--------------------- ---------------------
Total current assets 17,657,433 9,881,887
Property and equipment, net of accumulated
depreciation of $6,325,000 and $5,815,000 at
December 31, 1998 and June 30, 1998, respectively 5,141,954 5,059,935
Other Long-term Assets 225,000 -
===================== =====================
$ 23,024,387 14,941,822
===================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of debt $ 126,164 -
Accounts payable 1,903,954 1,831,458
Other current liabilities 2,580,702 2,584,769
--------------------- ---------------------
Total current liabilities 4,610,820 4,416,227
--------------------- ---------------------
Long-Term Debt 302,052 -
Commitments and Contingencies
Stockholders' Equity:
Preferred stock; $.01 par value, authorized 10,000,000 shares; Series F
convertible, authorized 2,000 shares; issued and outstanding 1,250 and
0 shares at December 31, 1998 and June 30, 1998, respectively
(Liquidation preference aggregating $12,528,750 and $0
at Dec 31, 1998 and June 30, 1998, respectively) 13 -
Common stock; $.01 par value, authorized 70,000,000 shares;
issued and outstanding 37,888,090 and 37,586,087 shares
at December 31, 1998 and June 30, 1998, respectively 378,881 375,861
Capital contributed in excess of par 111,184,495 97,987,728
Accumulated deficit (93,434,848) (87,837,979)
Other comprehensive loss (17,026) (15)
--------------------- ---------------------
Total stockholders' equity 18,111,515 10,525,595
--------------------- ---------------------
$ 23,024,387 14,941,822
===================== =====================
See accompanying notes to condensed consolidated financial statements.
Page 3 of 19
</TABLE>
<PAGE>
<TABLE>
IMMUNOMEDICS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 1,578,586 888,498 3,245,858 1,859,797
Royalties and license fee 6,217 7,755 10,604 13,054
Research and development 141,800 760,546 228,422 906,585
Interest and other 379,953 1,953,866 465,298 2,131,784
------------- ----------- ----------- -----------
Total revenues 2,106,556 3,610,665 3,950,182 4,911,220
------------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 69,766 45,186 138,428 69,422
Research and development 2,515,718 3,116,310 5,136,517 6,132,847
Sales and marketing 1,698,118 1,440,632 3,273,812 2,522,600
General and administrative 491,220 633,153 998,294 1,241,785
------------- ----------- ----------- -----------
Total expenses 4,774,822 5,235,281 9,547,051 9,966,654
------------- ----------- ----------- -----------
Net loss $ (2,668,266) (1,624,616) (5,596,869) (5,055,434)
------------- ----------- ----------- -----------
Preferred stock dividends 31,944 - 31,944 -
------------- ----------- ----------- -----------
Net loss to common shareholders $ (2,700,210) (1,624,616) (5,628,813) (5,055,434)
============= =========== =========== ===========
OTHER COMPREHENSIVE LOSS:
Net loss (2,668,266) (1,624,616) (5,596,869) (5,055,434)
Unrealized gain / (loss) on securities
available for sale - 455 15 (66)
Unrealized gain / (loss) on foreign
exchange 42,507 - (17,026) -
------------- ---------- ----------- -----------
Total other comprehensive gain
/ (loss) 42,507 455 (17,011) (66)
------------- ---------- ----------- -----------
Comprehensive loss $ (2,625,759) (1,624,161) (5,613,880) (5,055,500)
============= ========== =========== ===========
Net loss per basic and diluted common share $ (0.07) (0.04) (0.15) (0.14)
============= ========== =========== ===========
Weighted average number of
shares outstanding 37,770,684 36,364,209 37,678,386 36,344,396
============= ========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
Page 4 of 19
</TABLE>
<PAGE>
<TABLE>
IMMUNOMEDICS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
December 31,
1998 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,596,869) (5,055,434)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 514,513 473,093
Changes in operating assets and liabilities (915,567) (2,510,604)
Unrealized loss on foreign exchange (17,026) -
------------------- -------------------
Net cash used in operating activities (6,014,949) (7,092,945)
------------------- -------------------
Cash flows from investing activities:
Purchase of marketable securities (2,959,873) (8,865,541)
Proceeds from maturities of marketable securities 14,860 14,324,492
Additions to property and equipment (596,532) (157,587)
------------------- -------------------
Net cash provided by / (used in) investing activities (3,541,545) 5,301,364
------------------- -------------------
Cash flows from financing activities:
Issuance of preferred stock, net 12,349,800 -
Issuance of common stock, net 850,000 -
Deposits - cash collateral (225,000) -
Proceeds from debt 450,000 -
Payments of debt (21,784) -
Exercise of stock options - 17,870
------------------- -------------------
Net cash provided by investing activities 13,403,016 17,870
------------------- -------------------
Increase / (decrease) in cash and cash equivalents 3,846,522 (1,773,711)
Cash and cash equivalents at beginning of period 7,568,147 6,013,355
------------------- -------------------
Cash and cash equivalents at end of period $11,414,669 4,239,644
=================== ===================
See accompanying notes to condensed consolidated financial statements.
Page 5 of 19
</TABLE>
<PAGE>
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Immunomedics, Inc. (the "Company"), which incorporate the Company's
wholly-owned subsidiary Immunomedics Europe, have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, the statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The
balance sheet at June 30, 1998 has been derived from the audited
financial statements at that date. Operating results for the six-month
period ended December 31, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 1999.
For further information, refer to the annual financial statements and
footnotes thereto included in the Company's Form 10-K for the fiscal
year ended June 30, 1998.
(2) Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less, at the time of purchase, to be cash
equivalents. Included in other current assets at December 31, 1998 and
June 30, 1998 is accrued interest earned on cash equivalents and
marketable securities of $46,000 and $24,000, respectively.
(3) Income Taxes
The Company has never made payments of Federal or State income taxes
and does not anticipate generating book income in fiscal 1999;
therefore, no income taxes have been reflected for the six-month period
ended December 31, 1998.
(4) Net Loss Per Share
Basic loss per share is based on net loss for the relevant period,
divided by the weighted average number of common shares outstanding
during the period.
Diluted loss per share is based on net loss for the relevant period,
divided by the weighted average number of common shares outstanding
during the period. Common share equivalents, such as outstanding stock
options, and common stock issuable upon conversion of the Series F
Preferred Stock are not included in the computations since the effect
would be antidilutive. The accretion of the 4% annual increase in
stated value of the Series F Preferred Stock in the amount of $31,944
and $31,944 for the three and six months ended December 31, 1998
increased the net loss attributable to common shareholders to
$2,700,210 and $5,628,813, respectively. Net loss per share was not
effected.
Page 6 of 19
<PAGE>
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
(5) Comprehensive Income
On July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income
and its components. In accordance with SFAS 130, the Company has
displayed the components of "Other comprehensive income" and
"Comprehensive loss" in the accompanying Financial Statements. All
prior-period data has been reclassified to conform with the provisions
of SFAS No. 130.
(6) Inventory
Inventory is stated at the lower of average cost (which approximates
first-in, first-out) or market, and includes materials, labor and
manufacturing overhead.
(7) Stockholders' Equity
On June 27, 1996, the Company completed an equity financing pursuant to
Regulation S under the Securities Act of 1933 pursuant to which several
foreign investors purchased 200,000 shares of 5% Series D Convertible
Preferred Stock (the "Series D Preferred") for $10,000,000. The terms
of the transaction allowed the investors, at their discretion, to
convert the Series D Preferred into shares of the Company's common
stock during a 24-month period which began in June 1996, at a price
equal to 89% of the average market price per share over a 20-day
trading period surrounding the date of conversion. As of June 30, 1998,
all 200,000 shares of Series D Preferred had been converted into
1,795,771 shares of the Company's common stock.
On December 23, 1997, the Company entered into a Structured Equity Line
Flexible Financing Agreement (the "Equity Line") with an investor (the
"Investor"), pursuant to which, subject to the satisfaction of certain
conditions, the Company could have received up to an aggregate of
$30,000,000 over a 36-month period. The Company terminated the Equity
Line as of December 9, 1998. As of the termination date, the Company
had received a total of $5,350,000 for which the Company issued
1,358,838 shares of common stock. In connection with the Equity Line,
the Company issued to the Investor a four-year warrant to purchase
50,000 shares of the common stock at an exercise price of $7.5375 per
share (180% of closing sales price of common stock at the time of
issuance). In addition, the Company is required to issue to the
Investor an additional four-year warrant to purchase 54,000 shares of
common stock (representing 5,000 shares for each $500,000 of common
stock purchased by the Investor under the Equity Line during calendar
1998). The exercise price of such additional warrant is $7.087 per
share (180% of the weighted average purchase price of the common stock
purchased by the Investor during the year).
On December 9, 1998, the Company completed a private placement of 1,250
shares of 4% Series F Convertible Preferred Stock (the "Series F
Stock") to several institutional investors and received net proceeds of
approximately $12,330,000, after payment or
Page 7 of 19
<PAGE>
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
accrual of approximately $170,000 of expenses. The Series F Stock is
convertible at the option of the investors, in whole or in part,
beginning on June 8, 1999, subject to acceleration in certain
instances. The number of shares of common stock issuable upon
conversion of each share of Series F Stock will be determined by
dividing the stated value of $10,000 plus an accretion of 4% per annum,
by the conversion price then in effect. The conversion price for the
Series F Stock generally will be the lesser of (a) 125% of the average
market price on June 6, 1999 and (b) the average closing bid price of
the Company's common stock during a specified period prior to
conversion. The Series F Stock is redeemable under certain
circumstances and, under certain other circumstances, the Company may
be required to pay penalties and/or adjust the conversion price of the
Series F Stock. If the Company were required to redeem the Series F
Stock or make the penalty payments, it may not have the financial
ability to make such payments. Even if the Company did have the
financial ability to redeem the Series F Stock or pay the required
penalties, such payment could significantly and adversely affect its
financial condition and deplete its cash resources.
(8) License and Distribution Agreements
On November 24, 1997, the Company entered into a Distribution Agreement
with Eli Lilly Deutschland GmbH ("Lilly") pursuant to which Lilly will
package and distribute LeukoScan within the countries comprising the
European Union and certain other countries subject to receipt of
regulatory approvals. Also, effective April 6, 1998, Lilly began
packaging and distributing CEA-Scan within the countries comprising the
European Union. The Company pays Lilly a service fee based primarily on
the number of units of product packaged and shipped. The parties
contemplate that other future Company products may be handled under
this arrangement when appropriate.
On November 28, 1997, the Company was awarded $1,800,000, including
interest, from its arbitration claim against Pharmacia Inc. for breach
of contract and fiduciary duty arising out of the license agreement
with a predecessor of Pharmacia Inc.
that had been terminated in 1995.
Effective as of April 6, 1998, the Company appointed a subsidiary of
Bergen Brunswig Specialty Corporation as a non-exclusive distributor of
CEA-Scan in the U.S. Such subsidiary (currently Integrated
Commercialization Solutions, Inc.) serves as an agent of the Company in
providing product support services, including customer service, order
management, distribution, invoicing and collection.
The Company received $300,000 in final settlement of all claims between
the Company and Mallinckrodt, Inc. and its affiliate under the prior
distribution agreements, which were terminated in April 1998.
(9) Commitments and Contingencies
In February 1994, the Company entered into a master lease agreement,
which was
Page 8 of 19
<PAGE>
IMMUNOMEDICS, INC.
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)
development and manufacturing purposes having an aggregate acquisition
cost of up to $2,200,000. The basic lease payments under the master
lease agreement are determined based on current market rates of
interest at the inception of each equipment schedule take-down, and are
payable in monthly installments over a four-year period. The lease
agreement contains an early purchase option, at an amount which is
deemed to be fair value. As of December 31, 1998, the Company exercised
early purchase options on all equipment leased under the master lease
agreement. The Company has recorded lease expense for the three and six
months ended December 31, 1998 of $26,943 and $109,273, respectively.
(10) Debt
On October 28, 1998, the Company entered into an Equipment Financing
Agreement with the New England Capital Corporation, pursuant to which
the Company has received $450,000, at the interest rate of 10.12% per
annum, to be repaid over a 36-month period. The proceeds of such
financing were used to exercise the early purchase options for the
equipment leased through the master lease agreement detailed above. The
financing is secured by various equipment and an irrevocable letter of
credit in the amount of $225,000. The letter of credit is
collateralized by a cash deposit of an equivalent amount which is
included in "Other Long Term Assets" on the accompanying balance sheet.
At December 31, 1998, the Company's indebtedness under the Agreement
was $428,216.
(11) Reclassification
Certain amounts previously reported have been reclassified to conform
to current year presentation.
Page 9 of 19
<PAGE>
Part I - Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Statements made in this Form 10-Q, other than those concerning historical
information, should be considered forward-looking and subject to various risks
and uncertainties. Such forward-looking statements are made based on
management's belief as well as assumptions made by, and information currently
available to, management pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements as a result of a variety of factors, including those identified in
"Business" and elsewhere in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998.
Since its inception, the Company has been engaged primarily in the research and
development and, more recently, the commercialization of proprietary products
relating to the detection, diagnosis and treatment of cancer and infectious
diseases. On June 28, 1996, the U.S. Food and Drug Administration ("FDA")
licensed CEA-Scan(R) for use with other standard diagnostic modalities for the
detection of recurrent and/or metastatic colorectal cancer. On October 4, 1996,
the European Commission granted marketing authorization for use of the product
in the 15 countries comprising the European Union for the same indication. On
September 16, 1997, the Company received a notice of compliance from the Health
Protection Branch permitting it to market CEA-Scan in Canada for colorectal
cancer for recurrent and metastatic colorectal cancer.
On February 14, 1997, the Company was granted regulatory approval by the
European Commission to market LeukoScan(R), an in vivo infectious disease
diagnostic imaging product, in all 15 countries which are members of the
European Union, for the detection and diagnosis of osteomyelitis (bone
infection) in long bones and in diabetic foot ulcer patients. On December 19,
1996, the Company filed a Biologics License Application for LeukoScan with the
FDA for the same indication approved in Europe, plus an additional indication
for the diagnosis of acute, atypical appendicitis. As part of the review
process, the Company is in discussions with the FDA to address their comments
regarding the adequacy of the Company's data to support final approval for these
indications. The Company is confident that it can bring these discussions with
the FDA to successful and timely closure. In the meantime, the Company is
continuing to implement its plans for market introduction, and is working
diligently on preparation to bring this new product to the U.S. marketplace. As
with all filings, there can be no assurance that regulatory approval for such
indications will be received.
The Company is also engaged in developing other biopharmaceutical products,
which are in various stages of development and clinical testing. The Company has
not achieved profitable operations and does not anticipate achieving profitable
operations during fiscal year 1999. The Company will continue to experience
operating losses until such time, if at all, that it is able to generate
sufficient revenues from sales of CEA-Scan, LeukoScan and its other proposed in
vivo products. Further, the Company's working capital will continue to decrease
until such time, if at all, that the Company is able to generate positive cash
flow from operations or until such time, if at all, that the Company receives an
additional infusion of cash from the sale of the Company's securities, from
other financing or from corporate alliances to finance the Company's operating
expenses and capital expenditures.
Page 10 of 19
<PAGE>
Results of Operations
Revenues for the six-month period ended December 31, 1998 were $3,950,000 as
compared to $4,911,000 for the same period in 1997, representing a decrease of
$961,000. Product sales for the six-month period ended December 31, 1998
increased by $1,386,000 as compared to the same period of 1997, mainly due to
increased market acceptance of CEA-Scan and LeukoScan. Research and development
revenue for the six-month period ended December 31, 1998 decreased by $678,000
as compared to same period of 1997, primarily due to the recognition of
previously deferred revenue received from Pharmacia Inc. and lower grant revenue
of $106,000. Interest and other income for the six-month period ended December
31, 1998 decreased by $1,666,000. Interest income decreased by $147,000 due to
less cash available for investments. Other income decreased by $1,519,000
primarily due to the receipt, in November 1997, of an arbitration award of
$1,819,000 including interest from its dispute with Pharmacia Inc. The decrease
in other income was offset in part by the receipt of $300,000 in final
settlement of all claims between the Company and Mallinckrodt, Inc. and its
affiliate under the prior distribution agreements, which were terminated in
April 1998.
Revenues for the three-month period ended December 31, 1998 were $2,107,000 as
compared to $3,611,000 for the same period in 1997, representing a decrease of
$1,504,000. Product sales for the three-month period ended December 31, 1998
increased by $690,000 as compared to the same period of 1997, mainly due to
increased market acceptance of CEA-Scan and LeukoScan. Research and development
revenue for the three-month period ended December 31, 1998 decreased by $619,000
as compared to same period of 1997, primarily due to the recognition of
previously deferred revenue received from Pharmacia Inc., and lower grant
revenue of $39,000. Interest and other income for the three-month period ended
December 31, 1998 decreased by $1,574,000. Interest income decreased by $55,000
due to less cash available for investments. Other income decreased by $1,519,000
primarily due to the receipt, in November 1997, of an arbitration award of
$1,819,000 including interest from its dispute with Pharmacia Inc. The decrease
on other income was offset in part by the receipt of $300,000 in final
settlement of all claims between the Company and Mallinckrodt, Inc. and its
affiliate under the prior distribution agreements, which were terminated in
April 1998.
Total operating expenses for the six-month period ended December 31, 1998 were
$9,547,000 as compared to $9,967,000 for the same period in 1997, representing a
decrease of $420,000. Research and development costs for the six-month period
ended December 31, 1998 decreased by $996,000 as compared to the same period in
1997, primarily due to a decrease in the level of expenditures required to
obtain validation of the Company's manufacturing facility Cost of goods sold for
the three and six months ended December 31, 1998 increased as a result of
increased product sales. However, the decrease in costs of goods sold as a
percentage of product sales reflects the benefit of product sales from inventory
which was previously expensed by the Company prior to receiving product
approval. Sales and marketing expenses for the six-month period ended December
31, 1998 increased by $751,000, primarily due to an increase in personnel
associated with the Company's full-time oncology sales force in U.S. and
increased operating expenses for Immunomedics Europe as compared to the same
period of 1997. General and administrative costs for the six-month period ended
December 31, 1998 decreased by $243,000 as compared to the same period in 1997,
primarily due to reduced legal costs as a result of the conclusion of the
Pharmacia arbitration in November 1997.
Page 11 of 19
<PAGE>
Results of Operations (Continued)
Total operating expenses for the three-month period ended December 31, 1998 were
$4,775,000 as compared to $5,235,000 for the same period in 1997, representing a
decrease of $460,000. Research and development costs for the three-month period
ended December 31, 1998 decreased by $601,000 as compared to the same period in
1997, primarily due to a decrease in the level of expenditures required to
obtain validation of the Company's manufacturing facility. Sales and marketing
expenses for the three-month period ended December 31, 1998 increased by
$257,000, primarily due to an increase in personnel associated with the
Company's full-time oncology sales force in U.S. and increased operating
expenses for Immunomedics Europe as compared to the same period of 1997. General
and administrative costs for the three-month period ended December 31, 1998
decreased by $142,000 as compared to the same period in 1997, primarily due to
reduced legal costs as a result of the conclusion of the Pharmacia arbitration
in November 1997.
Net loss for the six-month period ended December 31, 1998 was $5,597,000, or
$0.15 per share, as compared to a loss of $5,055,000, or $0.14 per share, for
the same period in 1997. The higher net loss of $542,000 in 1998 as compared to
1997 primarily resulted from lower revenues, partially offset by reduced
operating expenses, as discussed above. In addition, the net loss per share for
the six-month period ended December 31, 1998 was positively impacted by the
higher weighted average number of common shares outstanding for this period, as
compared to the same period in 1997. The increase in the weighted average number
of common shares outstanding was primarily due to the conversion of Company's
Series D Preferred Stock (which was fully converted as of June 30, 1998) and the
issuance of common stock pursuant to the Company's Structured Equity Line
Flexible Financing Agreement (see Note 7 to Unaudited Condensed Consolidated
Financial Statements).
Net loss for the three-month period ended December 31, 1998 was $2,688,000, or
$0.07 per share, as compared to a loss of $1,625,000, or $0.04 per share, for
the same period in 1997. The higher net loss of $1,043,000 in 1998 as compared
to 1997 primarily resulted from lower revenues, partially offset by reduced
operating expenses, as discussed above. In addition, the net loss per share for
the three-month period ended December 31, 1998 was positively impacted by the
higher weighted average number of common shares outstanding for this period, as
compared to the same period in 1997. The increase in the weighted average number
of common shares outstanding was primarily due to the conversion of Company's
Series D Preferred Stock (which was fully converted as of June 30, 1998) and the
issuance of common stock pursuant to the Company's Structured Equity Line
Flexible Financing Agreement (see Note 7 to Unaudited Condensed Consolidated
Financial Statements).
Liquidity and Capital Resources
At December 31, 1998, the Company had working capital of $13,047,000, which
represents an increase of $7,581,000 from June 30, 1998. The net increase in
working capital resulted primarily from the Company's December 1998 private
placement offset by funding of operating expenses and capital expenditures.
In February 1994, the Company entered into a master lease agreement, which was
subsequently amended, pursuant to which the Company may lease equipment for
research, development and manufacturing purposes having an aggregate acquisition
cost of up to $2,200,000. The basic
Page 12 of 19
<PAGE>
Liquidity and Capital Resources (Continued)
lease payments under the master lease agreement are determined based on current
market rates of interest at the inception of each equipment schedule take-down,
and are payable in monthly installments over a four-year period. The lease
agreement contains an early purchase option, at an amount which is deemed to be
fair value. As of December 31, 1998, the Company exercised early purchase
options on all equipment leased under the master lease agreement. The Company
has recorded lease expense for the three and six months ended December 31, 1998
of $26,943 and $109,273, respectively (see Note 9 to Unaudited Condensed
Consolidated Financial Statements).
On October 28, 1998, the Company entered into an Equipment Financing Agreement
with the New England Capital Corporation, pursuant to which the Company has
received $450,000, to be repaid over a 36-month period. The proceeds of such
financing were used to exercise the early purchase options for the equipment
leased through the master lease agreement detailed above. The financing is
secured by various used equipment and an irrevocable letter of credit in the
amount of $225,000. The letter of credit is collateralized by a cash deposit of
an equivalent amount.
The Company's liquid asset position, measured by its cash, cash equivalents and
marketable securities, was $14,375,000 at December 31, 1998, representing an
increase of $6,792,000 from June 30, 1998. This increase was primarily
attributable to the Company's December 1998 private placement of the Series F
Stock financing which raised net proceeds of approximately $12,300,000, offset
by the funding of operating expenses and capital expenditures as discussed
above. It is anticipated that working capital and cash, cash equivalents and
marketable securities will decrease during the remainder of fiscal year 1999 as
a result of planned operating and capital expenditures. At present, the Company
believes that its projected financial resources will be sufficient to fund
anticipated operating expenses and capital expenditures through calendar year
1999. However, the Company believes that it will require additional financial
resources by the beginning of calendar year 2000 in order for it to continue its
budgeted levels of research and development and clinical trials of its proposed
products and regulatory filings for new indications of existing products. The
Company has commenced the planning process to raise such funds and anticipates
that such funds should be available through a private placement of securities or
other financing alternatives. However, there can be no assurance that any such
additional funds will be available upon terms acceptable to the Company, or at
all. The failure to obtain such terms on a timely basis would have a material
adverse effect on the Company.
In addition, the Company intends to supplement its financial resources from time
to time as market conditions permit through additional financing and through
collaborative marketing and distribution agreements. Also, the Company continues
to evaluate various programs to raise additional capital and to seek additional
revenues from the licensing of its proprietary technology. At the present time,
the Company is unable to determine whether any of these future activities will
be successful and if so, the terms and timing of any definitive agreements.
On December 9, 1998, the Company completed a private placement of 1,250 shares
of 4% Series F Convertible Preferred Stock (the "Series F Stock") to several
institutional investors and received net proceeds of approximately $12,330,000,
after payment or accrual or approximately $170,000 of expenses. The Series F
Stock is convertible at the option of the investors, in whole or in part,
beginning on June 8, 1999, subject to acceleration in certain instances. The
number of shares of common stock issuable upon conversion of each share of
Series F Stock will be determined by dividing the stated value of $10,000 plus
an accretion of 4% per annum, by the
Page 13 of 19
<PAGE>
Liquidity and Capital Resources (Continued)
conversion price then in effect. The conversion price for the Series F Stock
generally will be the lesser of (a) 125% of the average market price on June 6,
1999 and (b) the average closing bid price of the Company's common stock during
a specified period prior to conversion. The Series F Stock is redeemable under
certain circumstances and, under certain other circumstances, the Company may be
required to pay penalties and/or adjust the conversion price of the Series F
Stock. If the Company were required to redeem the Series F Stock or make the
penalty payments, it may not have the financial ability to make such payments.
Even if the Company did have the financial ability to redeem the Series F Stock
or pay the required penalties, such payment could significantly and adversely
affect its financial condition and deplete its cash resources. For more
information with respect to the Series F Stock, see Item 2 "Changes in
Securities and Use of Proceeds."
On December 23, 1997, the Company entered into a Structured Equity Line Flexible
Financing Agreement (the "Equity Line") with an investor (the "Investor"),
pursuant to which, subject to the satisfaction of certain conditions, the
Company could have received up to an aggregate of $30,000,000 over a 36-month
period. The Company terminated the Equity Line as of December 9, 1998. As of the
termination date, the Company had received a total of $5,350,000 for which the
Company issued 1,358,838 shares of common stock.
Impact of Year 2000
The Company is in the process of conducting a review of its business systems,
including its computer systems and manufacturing equipment, and has sent written
inquiries to its customers, distributors and vendors as to their progress in
identifying and addressing problems that their systems may face in correctly
interpreting and processing date information as the year 2000 approaches and is
reached. This review is expected to be complete by March 1999. Based on this
review, the Company will implement a plan to achieve year 2000 compliance. The
Company believes that it will achieve year 2000 compliance in a manner which
will be non-disruptive to its operations. In addition, the Company has commenced
work on various types of contingency planning to address potential problem areas
with internal systems, suppliers and other third parties. Year 2000 compliance
should not have a material adverse effect on the Company, including the
Company's financial condition, results of operations or cash flow. The Company
has incurred approximately $50,000 of costs to date related to year 2000. The
Company estimates the cost of its year 2000 efforts to be approximately
$250,000. The total cost estimate is based on management's current assessment
and is subject to change.
However, the Company may encounter problems with supplier and/or revenue sources
which could adversely affect the Company's financial condition, results of
operations or cash flow. The Company cannot accurately predict the occurrence
and/or outcome of any such problems, nor can the dollar amount of such problems
be estimated. In addition, there can be no assurance that the failure to ensure
year 2000 compliance by a third party would not have a material adverse effect
on the Company.
Page 14 of 19
<PAGE>
Part II - Other Information
Item 2. Changes in Securities and Use of Proceeds
On December 9, 1998, the Company completed a private placement of 1,250 shares
of its Series F Stock, par value $.01 per share, to several institutional
investors (the "Investors") and received gross proceeds of $12,500,000.
Each share of Series F Stock has an initial stated value of $10,000, which
increases at the rate of 4% per annum (such amount, as increased from time to
time, the "Liquidation Value"). The Series F Stock is convertible, in whole or
in part at the option of the holder, beginning on June 8, 1999, subject to
acceleration in certain instances, into such number of shares of the Company's
common stock, par value $.01 per share (the "Common Stock") as is determined by
dividing the Liquidation Value by the conversion price then in effect. The
conversion price generally is equal to (a) the Variable Conversion Price (as
defined below), if such Variable Conversion Price is less than the Trigger Price
(as defined below), (b) the Trigger Price, if the Variable Conversion Price is
equal to or greater than the Trigger Price and less than 150% of the Trigger
Price or (c) the Trigger Price plus one-half of the amount, if any, by which the
Variable Conversion Price exceeds 150% of the Trigger Price, if the Variable
Conversion Price is greater that 150% of the Trigger Price. The "Trigger Price"
is equal to 125% of the Initial Fixed Price. The "Initial Fixed Price" is equal
to the average closing bid price of the Common Stock during the 20 trading days
ending June 6, 1999. The "Variable Conversion Price" is equal to the average of
the 15 lowest closing bid prices for the Common Stock during the 45 trading days
preceding a conversion date.
To the extent that the Series F Stock would be convertible at a price less than
90% of the Initial Fixed Price, the Investors have agreed to certain
restrictions on the number of shares of Series F Stock that can be converted
during the first several months after the Series F Stock becomes convertible.
Any shares of Series F Stock outstanding on December 9, 2003 will automatically
be converted into Common Stock.
Subject to certain conditions and limitations, including that the Variable
Conversion Price has been at least equal to 125% of the Trigger Price for a
specified period of time, the Company, during the 90-day period commencing on
December 1, 1999 may, at its option, require the Investors to purchase up to an
additional 750 shares ($7,500,000) of Series F Stock. Under certain
circumstances and at certain prices, the Company may elect to redeem any shares
of Series F Stock and under certain circumstances may require the Investors to
convert their Series F Stock. The Company has granted the Investors certain
participation rights if the Company issues any future floating rate convertible
securities.
Upon the occurrence of a Major Transaction (as defined in Section (3)(c) of the
Amended Certificate of Designations, Preferences and Rights of Series F
Convertible Preferred Stock (the "Certificate of Designations")), a Trigger
Event (as defined in Section (3)(d) of the Certificate of Designations), or the
delisting of the Common Stock from the Nasdaq National Market other than as a
result of the limitations imposed by the Exchange Cap (as defined below), the
Investors may require the Company to redeem the Series F Stock at a price per
share (the "Redemption Price") equal to the greater of (i) 125% of the
Liquidation Value and (ii) the value of the Common Stock issuable upon
conversion of the Series F Stock.
Page 15 of 19
<PAGE>
Notwithstanding the foregoing, under the circumstances set forth below in lieu
of permitting the holders of the Series F Stock to require the Company to redeem
their Series F Stock, the Company may elect the following:
(a) if, despite the best efforts of the Company, the registration
statement (the "Registration Statement") under the Securities Act of 1933
covering the resale by the investors of the Common Stock issuable upon
conversion of the Series F Stock is not declared effective on or before May 8,
1999; then the Company, at its option, may (x) redeem the Series F Stock at the
Redemption Price or (y) pay a penalty equal to 1% of the Liquidation Value per
day (the "Redemption Penalty") and readjust the Initial Fixed Price to 80% of
the lowest Variable Conversion Price during the period commencing the 150th day
after closing and ending on the day the Registration Statement is declared
effective.
(b) if, after the Registration Statement becomes effective and despite
the best efforts of the Company to keep it available for use by the Investor;
such Registration Statement ceases to be available for more than 10 consecutive
days, then the Company, at its option, may (x) redeem the Series F Stock at the
Redemption Price or (y) pay the Redemption Penalty and readjust the Initial
Fixed Price to 80% of the lowest Variable Conversion Price during the period
commencing on the day the Registration Statement became unavailable and ending
on the day the Registration Statement is again available for use.
(c) if the Common Stock is delisted from the Nasdaq National Market
(other than as a result of a voluntary delisting by the Company as a result of
the Exchange Cap; then the Company, at its option, may (x) redeem the Series F
Stock at the Redemption Price or (y) readjust the Initial Fixed Price to 68.5%
of the lowest Variable Conversion Price during the period commencing on the date
of delisting and continuing for 45 days thereafter or (z) pay the Redemption
Penalty.
(d) if a purchase, tender or exchange offer is accepted by holders of
more than a specified percentage of the Common Stock which was not approved or
recommended by the Board of Directors of the Company or a proxy or consent
solicitation is made which results in consolidation, merger or other business
combination where such proxy or consent solicitation was not approved or
recommended by the Board of Directors of the Company; then the Company may (x)
redeem the Preferred Shares at the Liquidation Value or (y) readjust the Initial
Fixed Price to 80% of the lower of (A) the lowest Variable Conversion Price
during the period beginning on the date such offers or solicitation is announced
and ending on the date such offer or solicitation is consummated, abandoned or
terminated or (B) the Initial Fixed Price then in effect or (z) pay the
Redemption Penalty.
The Company is not required to pay the Redemption Penalty, in the aggregate, for
more than 15 days (or 10 days in the case of the events set forth in clause (d)
above) in any 365-day period.
Page 16 of 19
<PAGE>
The Company also has agreed to hold a Special Meeting of Stockholders on or
before March 24, 1999, to seek approval of the issuance of any shares upon
conversion of the Series F Stock in excess of 20% of the number of outstanding
shares of Common Stock on December 9, 1998 (i.e., 7,577,617 in accordance with
the rules and The Nasdaq Market, Inc. (the "Exchange Cap"). Approval of the
proposal will only require a majority of the shares voting in person or by proxy
at the Special Meeting of Stockholders. Dr. Goldenberg, certain members of his
family and certain executive officers of the Company, holding in the aggregate
approximately 30% of the currently outstanding Common Stock have agreed to vote
their shares in favor of such proposal. Such persons also have agreed not to
dispose of shares constituting approximately 27% of the currently outstanding
shares of Common Stock prior to such stockholders meeting. The Company has
agreed, among other things, to the payment of certain penalties if the Special
Meeting is not held on or before March 24, 1999 or if the proposal is not
approved by stockholders. The Investors have agreed that if they engage in short
sales transactions or other hedging activities during the 45 trading days
immediately preceding a Conversion Date (the "Pricing Period") which involve,
among other things, sales of shares of Common Stock, the Investors will place
their sale orders for common stock in the course of such activities so as not to
complete or effect any such sale on any trading day during the Pricing Period at
a price which is lower than the lowest sale effected on such day by persons
other than such Investor and its affiliates. The Investors also have agreed not
to enter into any short sales or other hedging activities which involve, among
other things, sales of shares of Common Stock, during the 25 trading days ending
June 7, 1999 (the date on which the Initial Fixed Price is determined).
The Company has agreed to cause the Registration Statement to become effective
on or before April 8, 1999 and to maintain effectiveness (subject to certain
penalties for non-compliance in addition to the penalties set forth above), of
the Registration Statement. The Company has agreed to reimburse the Investors
for their expenses in connection with their investment in the Series F Stock and
the preparation of the Registration Statement, up to a maximum of $50,000.
The offer and sale of the Series F Stock and the common stock issuable upon
conversion thereof was made pursuant to the exemption from registration provided
Regulation D under the Securities Act of 1933.
The foregoing summaries of agreements are necessarily incomplete and selective,
and are qualified in their entirety by reference to the agreements summarized,
each of which is incorporated herein as an exhibit.
Page 17 of 19
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1(n) Amended Certificate of Designations, Preferences and
Rights of Series F Convertible Preferred Stock of
Immunomedics, Inc.[a]
10.19 Securities Purchase Agreement, dated December 9,
1998, by and among Immunomedics, Inc. and the
Investors.[a]
10.20 Registration Rights Agreement by and among dated
December 9, 1998, by and among Immunomedics, Inc. and
the Investors.[a]
27 Financial Data Schedule
[a] Incorporated by reference from the exhibits
to the Company's Current Report on Form 8-K,
dated December 15, 1998
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on
December 15, 1998, responding to Item 5. - "Other
Events."
Page 18 of 19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IMMUNOMEDICS, INC.
(Registrant)
DATE: February 12, 1999 /s/ Robert J. DeLuccia
-----------------------
Robert J. DeLuccia,
President and
Chief Executive Officer
(Principal Executive
Officer)
DATE: February 12, 1999 /s/ Kevin F.X. Brophy
-----------------------
Kevin F.X. Brophy,
Vice President, Finance
& Administration
(Principal Financial
and Accounting Officer)
Page 19 of 19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722830
<NAME> IMMUNOMEDICS, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 11,414,669
<SECURITIES> 2,959,873
<RECEIVABLES> 1,830,024
<ALLOWANCES> (28,958)
<INVENTORY> 919,619
<CURRENT-ASSETS> 17,657,433
<PP&E> 11,466,650
<DEPRECIATION> (6,324,696)
<TOTAL-ASSETS> 23,024,387
<CURRENT-LIABILITIES> 4,610,820
<BONDS> 0
0
13
<COMMON> 378,881
<OTHER-SE> 17,732,621
<TOTAL-LIABILITY-AND-EQUITY> 23,024,387
<SALES> 3,245,858
<TOTAL-REVENUES> 3,950,182
<CGS> 138,428
<TOTAL-COSTS> 9,547,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,596,869)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,596,869)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,596,869)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
